... more than just covered calls!
PORTFOLIO INDEX PAGE
Systematic Covered Writing
... more than just covered calls!
PORTFOLIO INDEX PAGE
|
PORTFOLIO |
Comments | Current Funding | Last Update | AISN Value* |
| August 26, 2002 | This portfolio will be referred to as the OLD Portfolio in email messages. There was an additional deposit of $75k in December, 2010. |
$109,877.66 |
October 31st |
$126,739.64 |
| May 1, 2009 | The portfolio started out with a $4,000 deposit as a 'test'. Additional funds will be added in the future. This is now the $10k Portfolio. |
$10,000.00 |
January 13th |
$11,707.24 |
| August 7, 2009 | THE PORTFOLIO began with $100k on August 7, 2009. The total deposit was $500k. As of May 2011, $5000 per month is being withdrawn from THE PORTFOLIO. | $413,199.25 | February 4th |
$435,891.51 |
| August 19, 2009 | We begin with $110k available. We will refer to this portfolio as the $110k Portfolio when used in online examples. The positions will be established over the coming weeks. |
$109,000.00 |
January 13th |
$128,914.78 |
| February 3, 2010 | Funding for this new portfolio will total $360,000. With the additional funding, we are now calling this the $360k Portfolio. During 2010 and 2011 funds were remove from this portfolio making the current funding $293,013.10. | $$292,013.10 | October 31st |
$316,692.13 |
| April 16, 2010 | The $63k Portfolio. This is a Rollover IRA. | $63,668.00 | January 13th |
$63,594.19 |
| May 26, 2010 | The $130k Portfolio was established. This is also a Rollover IRA. | $130,630.57 | January 13th |
$125,512.33 |
| June 2, 2010 |
This $168k Portfolio will have a slightly different focus in that it
will hold a larger percentage of positions that pay dividends.
Often, the call premiums are not as rich with dividend paying
stocks, so we are saying we are willing to sacrifice a bit of
downside protection for the advantage of being paid dividends.
With this Portfolio ... you should be able to see that we can vary the SysCW investments based on the specific needs and or desires of the investor. |
$168,265.42 | January 13th |
$196,258.83 |
| February 7, 2011 | This portfolio will be referred to as the $2.5k Portfolio. This is a ROTH IRA portfolio which may will have additional funding from time to time. | $2,500 | November 3rd |
$2,531.58 |
| March 1, 2011 | The $50.5k Portfolio. is an actively funded IRA. The funds are to be fully invested with minimal cash on reserve. | $50,563.51 | January 13th |
$47,406.25 |
| March 31, 2011 | The $50k Portfolio is a new taxable portfolio that began with a deposit of $50,000. The funds are to be fully invested. | $50,000 | January 13th |
$42,581.38 |
SysCW Portfolio Information
Data Current as of October 31, 2011
| Portfolio | Current | Inception | Closed Positions & Averages | Active Positions & Averages | |||||
| Funding | Date | Number | Invested | Gain | Annualized | Number | Invested | Generated | |
| $2.5k | $2,500.00 | February 7, 2011 | 1 | $540.99 | $28.73 | 12.27% | 2 | $1,351.45 | $319.84 |
| $10k | $10,000.00 | May 1, 2009 | 15 | $1,241.32 | $200.62 | 30.58% | 10 | $1,547.76 | $472.51 |
| $37k | $37,106.94 | March 1, 2011 | 6 | $2,893.78 | $300.97 | 25.74% | 16 | $2,801.52 | $411.76 |
| $50k | $50,000.00 | March 31, 2011 | 7 | $2,460.01 | $221.07 | 33.13% | 19 | $3,152.79 | $468.33 |
| OLD | $109,877.66 | August 26, 2002 | 137 | $2,733.61 | $312.20 | 9.32% | 61 | $2,921.87 | $741.36 |
| $63k | $63,668.00 | April 16, 2010 | 35 | $2,626.10 | $333.78 | 25.36% | 32 | $2,656.09 | $547.70 |
| $110k | $110,000.00 | August 19, 2009 | 135 | $2,696.71 | $350.60 | 26.59% | 63 | $2,661.01 | $536.81 |
| $130k | $130,630.57 | May 26, 2010 | 71 | $3,170.73 | $327.27 | 21.36% | 65 | $2,819.74 | $472.23 |
| $168k | $168,265.42 | June 6, 2010 | 91 | $3,014.95 | $248.34 | 20.91% | 68 | $3,359.56 | $608.35 |
| $360k | $292,013.10 | February 3, 2010 | 160 | $3,011.26 | $285.19 | 19.71% | 112 | $3,820.75 | $702.88 |
| THE Port.. | $471,199.25 | August 7, 2009 | 399 | $3,019.74 | $328.98 | 20.71% | 192 | $3,530.88 | $629.99 |
The transactions listed within any portfolio listed above are both real and complete. In a diversified portfolio, 'stuff' happens. Some positions will do better than others which is why we stress the 'nobody knows' principal. it would be unrealistic to assume, or for that matter present only the good data for a given portfolio, for as we all know, stuff happens. We list them all ... good, bad or indifferent! One of the keys to SysCW lays in what we call having a 'forest view'. By this we mean ... always consider all of the positions in a portfolio (the forest) as opposed to any individual position in the same portfolio (a tree).
These portfolios are presented for educational purposes only and are not intended to be investment advice. Over the years improvements in the decision making process have been achieved ... in a nutshell this 'learning' experience can be summed up by always maintaining a well diversified portfolio. This means staying away from concentrated positions even though some premiums can be very compelling at times.
If you would like 'help' ... in terms of understanding strategies, and or specific situations, we can both learn be establishing a dialog. Our goal will always be aimed at helping to explore possibilities which may be overlooked. In the end, the path taken will always be your choice for after all, it is your money! Having said that ... please direct questions to rlcoveru@cox.net .
----- A detailed explanation of the AISN VALUE follows.
*AISN Value -
The As It Stands Now Value is provided to help see the intrinsic value of a SysCW portfolio. If one were to log into any brokerage account, he or she could readily see the current liquidation value of his or her account. Please note this is not quite true for the following reason:
- The current liquidation value does not include the fees the brokerage firm would charge to close all of the open positions!
So, the 'Total Account Value' is accurate, but not really ... for in order to actually remove the funds, positions would need to be liquidated. Of course 'they' don't explain this when presenting their liquidation 'value'. Back to this thought in a moment...
To explain the Systematic Covered Writing AISN value, let us look at the two kinds of positions which will exist in any SysCW portfolio.
- The current trading price of the underlying stock is ABOVE the existing strike price.
- The current trading price of the underlying stock is BELOW the existing strike price.
The AISN Value simply looks at what the value of the portfolio would be if the trading prices of all underlying stocks are the same when the options expire as they were when the calculation was processed. (In other words ... if the prices 'hold' at their current value, here is where we will be). The reason for calculating this figure is simple ... with a typical stock investment account (stocks and or mutual funds) ... the only way the value of the portfolio is going to increase is if the overall value of the holdings increases. If a stock is trading at $26 today ... and it is trading at $26 in January of next year ... it is still only going to be worth $26 a share. This should be obvious, and indeed, it is quite accurate.
Using the same $26 stock ... let's say we have 100 shares, but let us also say that we have a $25 call which we sold against the shares. Depending on how much time there is prior to expiration, the option held in the account will have a negative value. This is because it was sold short ... and we already have received the proceeds. The point is ... if the price of the stock were to remain at $26 ... the value of the stock would not change ... it would still be worth $2,600. The option on the other hand would continuously lose value until it approached the $1.00 difference ($100 total) between the strike price and the trading price (note we are talking about a $25 option written against a $26 initial purchase price). The $100 is nothing more than the intrinsic value of the option. Initially, the value of the option would have been a combination of this $1, plus the 'extra' or extrinsic value. It is the extrinsic value that erodes over time.
Keep in mind ... the 'liquidation value' of the stock is staying the same while the 'liquidation value' option is becoming less negative over the same period. This is not magic ... is has to happen. FACT - If the current trading prices of all of the covered holdings in a portfolio were the same on the furthest expiration date as they are today, then the back to cash liquidation value of any SysCW account would be higher at that time than the Total Account Value is today! Not only will it be higher ... but we can actually figure out exactly what the value would be. Here's why:
- If the current trading price of the stock is currently ABOVE the existing strike price, the stock will be assigned at the strike price. We know the strike price ... we know the fees associated with having a stock assigned, so we can easily calculate the proceeds we would receive for each position where the option would be exercised. It does not matter how much higher the price of the stock becomes or is ... we are already committed to selling the stock at a very specific price.
- If, on the other hand, the current price of the stock is BELOW the existing strike price, then the option will expire worthless to the holder (remember this is not us ... because we sold the option to someone else ... and they are watching the value of their investment dwindle down to nothing. Again, if the price is the same at expiration as it is today, we would be left holding the shares of stock. The only assumption we are making is the trading price is the same at that time as it was when the AISN Value was calculated. Given that we are assuming the price is the same then ... as it is now ... we can easily calculate the proceeds if we were to manually sell the stock holdings which are not assigned when the options expire. Again ... either the option is going to be exercised, or the option will just 'go away'.
One of the two scenarios just mentioned will occur with each position in the portfolio. Either the stock is going to be assigned, or it's not. In either case we know, based on the current prices, exactly where we would be IF THE MARKET DID NOTHING! Again, with a typical stock or mutual fund portfolio, the only way the Total Account Value is going to appreciate is if, and only if, the overall value of the contents of the portfolio INCREASES. With a SysCW portfolio ... it is not necessary for stocks to appreciate in order for the liquidation value to increase over time. Please note ... we really do not need the stocks to be at exactly the same price!
If we have ten positions that are trading below their respective strike prices when we calculate the AISN value, the future prices could be different without affecting the 'bottom line' (the AISN value). All we need is for every stock that loses a dollar in value, we have one that gains a dollar in value. This assumes we have the same number of shares of both!
The As It Stands Now (AISN) value extrapolates the "what if nothing changes" value of the portfolio based on the current trading price of the underlying stock holdings. Please note this 'value' includes the fees the brokerage firm would charge to close all open positions. We are waiting for all options to either expire or be exercised. Oh ... and our calculation INCLUDES all the fees associated with really liquidating positions.
- AISN Gain - Okay ... this is a little forward looking ... but it is based on CURRENT PRICES, and not some expectation of future changes. To really attempt to drive the AISN thinking home, do note there are only two plausible outcomes for each position.
- If the stock is trading above the existing strike price, then the stock well be sold at that price. PERIOD. It does not matter where the price is. All that matters is it is above the strike price. Again ... we can determine to the penny exactly what our proceeds will be if the option is exercised.
- If the option is currently in a position where it will NOT be exercised due to the stock's price, then we KNOW this option will expire. All we are doing is saying if the price is the same at expiration as it is today, then after the call expires, we will sell the stock at THAT price ... which happens to be the same as the price it is trading today.
Got it? Okay ...now we know how much we funded the portfolio with in the first place. Note this is the cash we put in 'harms way'. Because we use the same cash over and over (do not confuse the funding with how much we invested in stock) to calculate the AISN Gain, we can take the AISN value and divide it by the net portfolio funding. When we do this we end up with our net percentage gain
SYSTEMATIC COVERED WRITING
Copyright © 2006. All rights reserved.
Revised: 02/05/12